Multi-product firms and business cycle dynamics

  1. Antonio Minniti 1
  2. Francesco Turino 2
  1. 1 Università di Bologna, Italia
  2. 2 Universitat d'Alacant, Departamento de Economía
Revista:
Working papers = Documentos de trabajo: Serie AD

Año de publicación: 2011

Número: 20

Páginas: 1-30

Tipo: Documento de Trabajo

Resumen

Recent empirical evidence provided by Bernard et al. (2010) and Broda and Weinstein (2010) shows that a significant share of product creation and destruction in U.S. industries occurs within existing firms and accounts for a relevant share of aggregate output. In the present paper, and consistently with this evidence, we relax the standard assumption of mono-product firms that is typically made in dynamic general equilibrium models. Building on the work of Jaimovich and Floetotto (2008), we develop an RBC model with multi-product firms and endogenous markups to assess the implications of the intra-firm extensive margin on business cycle fluctuations. In this environment, the procyclicality of product creation emerges as a consequence of strategic interactions among firms. Because of the proliferation effect induced by changes in product scope, our model embodies a quantitatively important magnification mechanism of technology shocks.